Las Vegas Construction Jobs Still on the Rise

Presenting all the latest economic trends and metrics from Southern Nevada.

Of special note: Construction in the Las Vegas MSA continues to be boosted by a strong housing market and a recovering commercial market. In December 2017 the number of Southern Nevada construction workers rose by 8,358 (12-month moving average) from December 2016, a 15.1 percent increase that puts total construction jobs at 63,675. That makes 65 straight months (more than five years) of construction job growth.

Stat Pack co-publisher and RCG Economics Principal John Restrepo is happy to answer questions at jrestrepo@rcg1.com.

The RCG Employment Index’s 12-month moving average (“12MMA”) has now remained unchanged for 5 straight months, again holding at 98.7 through December. On a YOY basis, the Index is up 0.7 points from December 2016. After reaching 1.3 in June of this year, the YOY difference has fallen steadily as the Index remains stagnant. The Index is still 1.3 points below the November 2006 peak of 100.

The 12MMA of Clark County’s headline unemployment rate was 5.1% in December, making this the 5th month in a row that the rate remained unchanged. This is the longest streak seen since April 2011. The unemployment rate is 0.7 points below last December’s 5.8%. It reached its lowest level over 11 years ago in October 2006 when it was just 4%. Southern Nevada is now theoretically at “full employment.” We may be seeing the new normal in terms of unemployment post recovery.

The 12MMA rate of job growth in the Las Vegas MSA was also unchanged, holding at 3%. Job growth at the regional and national levels has been suffering from the same effect: According to the Brookings Institution, the slowdown is mainly due to decreasing demand for unskilled labor.

The U-3 unemployment rate, or headline rate, for Nevada, after rising 0.2 points in Q3, fell back down by the same amount in Q4. The U-3 rate is now back to an even 5%, or 0.4 points above the average rate for 2007, the year the Great Recession hit. The U-6 rate had its biggest decline since Q3 2016, dropping 0.6 points from 11.4 to 10.8.

In terms of the U-3 rate, Nevada moved up a single place in Q4 and is now sharing the 8th highest headline rate in the nation with Ohio. In Q2 it was beating 13 other states. As for the U-6 rate, which measures underemployment, Nevada holds the 3rd highest rate in the country, beating only New Mexico and Alaska. Nevada businesses maintain a significant reliance on part-time workers.

Construction in the Las Vegas MSA continues to be boosted by a strong housing market AND a recovering commercial market. In December 2017 the number of Southern Nevada construction workers rose by 8,358 (12MMA) from December 2016, a 15.1% increase that puts total construction jobs at 63,675. That makes 65 straight months (over 5 years) and counting of construction job growth.

Construction jobs represent 7% of the region’s job-base, up 0.1 from last month. The number of construction jobs today is well below the November 2006 peak of 108,833, when they accounted for 11.4% of all MSA jobs. Pre-recession construction job numbers, which were artificially inflated due to the real estate bubble, are not likely to return in the foreseeable future. That said, the region’s construction industry is much more stable today than it was then.

In December 2017 the Las Vegas MSA’s 12-month visitor count, on an annualized basis, was 42.2 million. This is down from the 42.3 million over the 12-month period ending in November 2017. The number of visitors to Clark County fell in December for the 7th month in a row, this time by -0.2%. When compared to December 2016, there was -1.7% YOY growth. This is the 5th month in a row YOY visitation has declined.

After leading since the start of year and all the way through November, in December the final visitor count for 2017 fell behind that of 2016. There were 42.2 million visitors to the Las Vegas MSA in 2017, compared to 42.9 million in 2016. Visitor growth slowed considerably in 2017 with a YOY visitor growth rate average through December of -0.1%. The average rate of growth over 2016 was much better at 2.7%. We believe we have now entered a sustained period of slower growth. The month of greatest YOY growth since the recession was September 2011, when visitor volume grew by 4.5%. We believe that the primary reason for the slowdown is a room capacity issue.

In December, Clark County’s annualized convention attendance saw a small gain from the previous month of 0.61%, reaching a new record high of 6.65 million attendees for the Las Vegas MSA over a 12-month period. Compared to December 2016, convention attendance is up 6.9%. The previous annualized peak attendance of 6.35 million was in January 2007.

Convention attendance saw significant gains in 2016 with 10 months of greater than 10% YOY growth; however, starting in October of 2016 YOY growth began to drop steadily until reaching a low in September 2017 of 1.1% YOY growth. The YOY growth rate popped back up the following month and has averaged 6.3% over the last 3 months of the year. Demand growth is being limited by maxed-out capacities at Las Vegas’ various convention facilities. The good news: In June 2017, the Las Vegas Convention and Visitors Authority’s Board of Directors gave final approval for an expansion and renovation of the Las Vegas Convention Center, which will allow the city to host more conventioneers.

In December 2017, the 12MMA of hotel revenue per available room (RevPAR) in Clark County was $114.59, a drop of $0.12 (-0.11%) from the previous month. Compared to December 2016, RevPAR is up $2.31 (2.1%), which continues its streak of YOY growth that began 7 years ago in December 2010. The RevPAR 12MMA had been nearing the peak of $119.43, which occurred in December 2007, but over the past 4 months it has been headed in the opposite direction.

Note: RevPAR is a performance metric in the gaming and lodging industry. It is computed by dividing a resort’s or hotel’s room revenue by the room count and the number of days in the period being measured.

On a 12MMA basis gaming revenue net of baccarat was up 0.51% to 735.7 million in December, a small pickup that more than made up for the tiny dips of the previous two months. YOY growth in December of 4% was up (1.0 point) from the 12-month period ending in November. This makes 35 months straight of positive YOY growth. December’s gaming revenues net of baccarat were nearly 88% of the October 2007 peak of $834.4 million.

The net baccarat revenues are largely comprised of slot revenues, which generally reflect wagering of typical gamblers, especially U.S. gamblers. While changing spending patterns among millennials under 35 have caused a decrease in slot revenues, they are now recovering because there has finally been some improvement with the issue of constrained disposable income.

According to Home Builders Research, in December, total (new and resales) Clark County home closings on a 12MMA were down -0.02% from the previous month, ending an 11 month streak of positive growth. Total sales fell below last month’s peak of 4,933 by 1. However, on a YOY basis total home sales are still well above the previous year by 8.6%, an improvement over the year period ending in November of 0.7 points. New home sales had a YOY growth rate of 16.9% in December. Existing home sales also continue growing steadily with a YOY growth rate of 7.1%; not as rapidly as new homes but healthy growth, nonetheless.

Per Home Builders Research, December’s 12MMA median home price (new and resale) was $244,453, a 1.31% gain over the previous month. This was the biggest monthly increase of the year. Compared to December 2016, the price is up 11%. The current median home price remains well below the peak of $305,333, which was recorded close to 11 years ago in February 2007. December’s estimate is 80% of the peak price.

The median new home price was again up 6.3% from the previous year, reaching a new peak in December of $343,588. The previous peak of $327,066 occurred in February 2007.

The median resale home price was $225,900 in December, an 11.4% increase during the last 12 months. This was the biggest YOY increase since October 2014. The peak of $286,833 occurred over 10 ½ years ago in April 2007. This means that the current resale price has now recovered approximately 79% of its pre-recession peak. For comparison, the median resale home price in the Reno-Sparks MSA was over $100,000 higher at $336,901 (12MMA).

The rate of home appreciation for new and resale homes continued its rising trend in December. YOY growth had dropped to 6.4% in December 2016 but has risen steadily in the 2nd half of 2017, averaging 9.2% YOY growth over the last 6 months. The annual peak of 35.8% growth occurred in February 2005.

The 12MMA 30-year fixed rate mortgage in the Western Region was nearly unchanged, falling by just 0.01 points to 3.98% (12MMA) in January. This was the 2nd dip in a row after 12 straight months of increases. The 10-year peak of 6.4% occurred in October 2006. The 30-year fixed rate mortgage should remain relatively low, but will likely go up because of Federal Reserve actions.

The 12MMA Case-Shiller home price index for the Las Vegas MSA reached 161.3 in November 2017, a rise of 7.6% compared to November 2016. The YOY growth rate has been picking up steadily since March of this year and in November the trend continues with the rate rising by 0.3 points from the previous month. The US index in November was up 1.0 again, reaching 198.9, an increase of 5.9% for it compared to the previous year. The Las Vegas index peaked at 233.2 in December 2006. The latest LV index is 69% of the peak. Both indexes have been on the rise since 2012. The greatest positive annual change (44.5%) in the Las Vegas index occurred in March 2005, while the greatest negative change (-31.8%) occurred in August 2009. These trends are similar to those reported by Home Builders Research.

The 30-Day LIBOR remained relatively unchanged in January while the 10-year U.S. Treasury rose a whopping 32 basis points during the same period. Yields are believed to be rising due in part to an improving labor market, rising corporate profits, and an overall expansion in economic activity. In Janet Yellen’s final meeting as chair, a unanimous vote by the Federal Open Market Committee (FOMC) left its benchmark interest rate unchanged at a current range of 1.25% to 1.50%. The FOMC is expected to raise rates during the next meeting in March.

While interest rates continue to adjust upward, long-term fixed-rate loans have remained relatively low in the 3.75-4.85% range. Markets for the major loan segments remain quite liquid, creating flexible terms for borrowers.

Increased local resident and business spending in Nevada and Clark County continues to fuel rising taxable retail sales despite a declining visitor growth rate. We believe much of this growth is due to the volume of construction activity combined with vigorous visitor spending. Another record high was reached in November with over $3.45 billion in sales, a 3.8% increase from last year. The increase from the previous month was 0.27%. The YOY growth rate for taxable retail sales averages 4.2% through November.

November’s taxable sales are the highest ever recorded by the State of Nevada on a nominal basis (not inflation-adjusted). As such, they have boosted local and state government revenues and spending. Steadily improving local, regional and national job markets are key to this improvement. This is especially true regarding the health of regional and national economies, which have driven Southern Nevada’s growth, benefiting all of its sectors. They are also primary drivers of visitors and convention attendance to Las Vegas, which is ultimately reflected in tourism spending in the region.

Note: The Nevada Department of Taxation has recently made public its marijuana tax revenue data. We have added a new chart to the Stat Pack tracking the monthly contribution of this new revenue source, to the extent it is reported by the Department.

The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) was up by just $1 in December after 4 straight months of $3 increases. The streak of growth started just over 3 years ago in September 2014 continues, nonetheless. On a YOY basis, the 12MMA was up $35 (4.6%) from December 2016.

When considered on an inflation-adjusted, YOY basis, earnings rose by 2.5% in December 2017 compared to December 2016, reaching $668 (in 2007 dollars). However, when compared to the previous month real earnings remained nearly the same, falling by just $0.13. Las Vegas’ average weekly real wage remains $83 (11%) below the most recent inflation-adjusted peak of $751 that occurred over 10 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas remains much closer to the trough than the peak.

The number of average weekly hours worked in Las Vegas (Clark County), on a 12MMA basis, picked up another 0.1 points in December, reaching 33.9. Weekly hours have been climbing steadily, albeit slowly. On a YOY basis, average weekly hours are up 0.7 hours from December 2016, a good sign considering they were either down or unchanged YOY through all of 2016. In Q4-2017, the U-6 unemployment rate recorded a 0.6 point drop, a bigger decline than in any of the previous 5 quarters. This suggests business reliance on part-time workers continues to decrease. The 7-year peak of 36.9 hours occurred more than nine years ago in October 2008.

Implication: Despite a decreasing U-6 unemployment rate, many companies continue to depend heavily on part-time workers and independent contractors. For this reason, Nevada’s U-6 unemployment rate (including discouraged and part-time workers) remains the nation’s 3rd highest at 10.8% as of Q4, 2017. However, the decreasing U-6 rate does seem to be having a salutary effect on weekly hours. In 2016, the net gain in weekly hours was 0. Already in 2017 weekly hours have increased 0.7 hours.

As of February 2, Las Vegans saw the price of regular unleaded gasoline in the Las Vegas MSA increase by $0.11 (3.9%) from the month prior, resulting in a per gallon price of $2.72. The price of regular unleaded has gone up $0.29, or 11.8%, from a year ago.

According to AAA, “Six of the most expensive gas prices in the country are in the West Coast region: Hawaii ($3.39), California ($3.34), Alaska ($3.05), Washington ($2.99), Oregon ($2.89) and Nevada ($2.75). On the week, California (+7 cents) saw the region’s largest increase, while Washington, Oregon and Nevada each saw a 4 cent increase, Alaska jumped 2 cents and Hawaii increased by a penny.

According to the EIA, gasoline stocks in the region dropped by the largest amount seen in the last 12 weeks – nearly 700,000 bbl. Inventories of gasoline sit at 33.9 million bbl, which is still 3.3 million bbl higher than last year’s level at the same time.”

A well-known housing market indicator is the employment-to-housing permit ratio, or E-P Ratio. It compares monthly job growth to the number of housing permits issued during the same month. At 1.6 in December, the E-P Ratio for Clark County was unchanged from the previous month. Relative to December 2016, the E-P Ratio is up 0.2 points from 1.4. The general consensus among real estate analysts is that an E-P Ratio between 1.0 and 2.0 indicates a stable market. Clark County’s E-P Ratio has been in this range for more than a year now, since October 2016.

Excise tax revenues generated from marijuana sales through the first five months are $24.6 million. The most readily available data report by the Nevada Department of Taxation contains retail and wholesale excise taxes. These taxes do not include sales and use taxes paid at point of sales at the dispensaries or the annual licensing fees paid by the industry. The wholesale excise tax is collected at a 15% rate from growers to dispensaries on medicinal- and recreational-use marijuana, while the 10% retail excise tax is charged to dispensaries’ recreational users.

According to the Department, tax revenue from the sale of marijuana is expected to reach $120 million over 2 years. With tax revenue only expected to rise in the coming months, the state appears to be well on track to reach this goal. The major “know unknown” is if the U.S. Justice Department will go through with its threats of curtailing or putting a halt to the industry’s activities.